The Start of A Bigger Sell-Off? ... Market Breaks Down! | Elliott Wave S&P500 VIX Technical Analysis

Rob Roy opens the LAW Wave Options market update discussing a notable breakdown in the SPY after a period of consolidation. The SPY had formed an ascending triangle with embedded symmetrical triangle, signaling an imminent move predicted in the previous night's insider webinar. The market broke down today with the first support level being the B-wave of a previously discussed zigzag pattern around the 765 level. Roy notes the downside volume was significant but not extensive enough to suggest immediate reversal. Key support levels to watch are 745 (previous triangle point from August) and 730 (full zigzag retracement). He emphasizes that prices cannot be viewed as bullish until the market recovers above 780.

On macro indicators, Roy highlights concerning developments beyond the traditional bond market culprit (TLT). The PCE report jumped from 3.4% to 3.6% year-over-year, moving further from the Fed's 2% mandate. More troubling is the recent divergence in Fed liquidity, which has declined for two consecutive weeks despite Powell's previous indication of delaying balance sheet shrinkage until first quarter next year. This liquidity-to-S&P divergence historically suggests market stress ahead. Additionally, the global financial conditions index shows significant divergence from the S&P due to rising oil prices, which Roy identifies as a potential double problem—both for market support and inflationary pressures.

On bonds, TLT displays a well-constructed five-wave Elliott Wave pattern with wave four at the 50% corrective level. If a wave five materializes on top of today's move, it would signal substantially higher interest rates, creating a double whammy for markets. The shorter end of the curve (SHY) shows a glimmer of hope with prices moving up (yields down), breaking above a downtrending channel, which could indicate beginning yield curve steepening. The dollar hovers at elevated levels with wave three still intact, which Roy views as troubling given potential future rate and yield implications.

Roy analyzes the major indices: the DIA has undergone significant relabeling now showing a potential wave five downside pattern, with target levels at 500. The QQQ broke out of nearly three months of trading range consolidation, overcorrected downside, and now requires follow-through confirmation at the start of the week, with potential target of 660. The IWM (small caps) closed above the 10-day moving average despite significant weakness, maintaining correlation with rising interest rates.

On commodities, USO (oil) presents one of Roy's favorite technical patterns—a well-constructed, symmetrical Elliott Wave with wave five potentially reaching toward 185, exacerbating inflationary concerns. Natural gas (UNNG) broke critical 10 level support with no meaningful test, suggesting supply dynamics are winning over demand. Crypto shows mixed signals with Bitcoin potentially forming an expanding triangle at the 38.2% Fibonacci level, risking support down to 36 if the 50-day moving average cannot be reclaimed quickly. Ethereum maintains slightly better support despite similar August gains being unwound.

On individual stocks: Google experienced one of its worst earnings-related selloffs and now tests March lows around 250. Apple held the 50-day moving average despite earnings, benefiting from apparent corporate buyback support. Amazon broke support at 230 following earnings disappointment on advertising costs. Intel collapsed on guidance about slowing PC demand due to chip pricing, breaking long-held support at 85. The SMH semiconductor ETF likely needs to test the 500 B-wave level. SpaceX broke 145 support with potential downside to 110. Gold and silver show weakness with gold potentially rolling over from 365 and silver from 50, offering potential short opportunities. Nvidia broke 210 with next support at 190. Microsoft held relatively well despite strong Azure earnings, potentially testing a 500 triangle point.